TMAS Potential Upside Risk Though Hard to Measure

Pelayaran Tempuran Emas (TMAS) provide several upside risk that may boost further its earnings as: 1.) Demand in domestic cargo transportation is correlated to GDP growth, 2.) Potential improved port infrastructure which may enhance cost efficiencies, 3.) Rejuvenating fleets and scrapping old vessels which enhance vessel productivity and cost efficiencies.

Since 2011, TMAS earnings have hinted a turnaround story as its earnings jumped to IDR27bn from a loss of IDR179bn and IDR114bn in 2009 and 2010 respectively. 9M12 net profit reached IDR92bn translating to an annualized 3x 2012 PER. We have a “Not Rated” call for TMAS.

Domestic container industry to grow. The domestic container vessel growth is correlated with Indonesia’s strong GDP growth. With strong domestic consumption coupled with Indonesia’s large archipelago landscape, demand for TMAS’ container shipping services is highly imminent in the short and long-term period.

Why earnings were negative back in 2009 – 2010 then turn positive to 2011? TMAS’ wrong timing in expansion back in 2008 has led to a severe downturn to its financial earnings in 2009. Delayed arrival of TMAS’ ships which should have been up in Indonesian waters by 2008 resulted in less maximal utilization of these ships. We are less worried regarding container volume as during its tough period in 2009, container volume managed to increase 12% y-o-y showing strong demand due to Indonesia’s growing economy, however rates was the problem as it is strongly affected by the global crisis situation.

In 2009 and 2010 the management rejuvenated its fleet by releasing vessels from the aspects of age, fuel inefficiencies and vessel size that are no longer effective for the port that experienced sitting. Although in 2011 revenue was relatively flat with container volume declined 14% y-o-y, gross margin improved to 22% from only 2% in 2010 as TMAS scrapped old vessels making sure existing vessels applied are well utilized.

9M12 figures looks like a turnaround story
9M12 net profit figure which reached IDR92bn seems as a turnaround as earnings picks up from an IDR9bn loss back in 9M11. 2011 figure reached positive, however ROE was still low at 11.5%. Assuming 2012 annualized earnings with no dividend payout (we think it is still not the right time for dividend distribution), TMAS would provide an attractive 34% ROE for FY12.

The question remains on the aforementioned upside risk especially on improved infrastructure. TMAS expect revenue going forward to increase 11% – 17% going forward, however bottom line remains unclear until we see a clearer and consistent cost structure going forward.

Valuation
TMAS is currently trading at annualized 3x 2012 PER with expected 2012 ROE of 34%. Dividend distribution is unlike to be seen at this current stage.